This is a survey of modern history from a global perspective. Part One begins with the political and economic revolutions of the late 1700s and tracks the transformation of the world during the 1800s. Part One concludes as these bewildering changes seem to be running beyond the capacity of older institutions to handle them. Throughout the course we try to grasp what is happening and ask: Why? And the answers often turn on very human choices.

Taught By

Philip Zelikow

White Burkett Miller Professor of History

Transcript

Hi. Welcome back. Make yourself comfortable. I don't think you needed to take a course from me to find out that capitalism is important. But it is kind of interesting to notice that in the late 1800s, and especially in this period, modern capitalism, as we know it today, really takes off. What's the difference between, say, capitalism, buying and selling stuff down through the ages, and modern capitalism? Well, actually you can boil the differences down to two things that sound pretty simple: add money, add organization, and capitalism gets a lot more modern. [LAUGH] Let's talk a little bit first about what I mean by add money, modern money. In the traditional era, let's say even in 1850: what's money? Where does it come from? Well, it's usually coins. Coins often of things like both gold and Silver, both in wide circulation. Some paper money that was issued in some relationship to the gold coins or the silver coins, issued by lots of people. All kinds of different states and even companies sometimes could issue money. You'd go into parts of the United States, for example, and find that people were still using Spanish coins as money. Whatever people would accept. What really is happening as you get into the 1870s is that money is getting standardized. And frankly when you standardize money, and when you standardize cash, money gets to be a lot more useful, and you can make and use a lot more of it with a lot less friction and transaction cost. This coincident with a really important development: the rise of the gold standard. So before 1870, people are issuing money, usually based on both sides of the Atlantic on either gold or silver. In East Asia, for example, in China, silver was the dominant coin of the realm. The gold standard becomes the dominant international monetary standard in the 1870s. Why? First of all, because gold, as a medium of exchange, had been used by the British and the French. But in the early 1870s, they're joined in this by the Germans. And instead of bunch of different people in quote Germany, issuing money, there's now one German state issuing money, and the new German Empire puts all their money on the gold standard. How do they do that? Because they win the Franco-Prussian War. And, in winning the Franco-Prussian War, they force the French to give them lots and lots of gold as reparations. They use that gold in order to create a money in Germany backed by gold. A lot of it from the French. And the other big development in the 1870s is the Americans go on a gold standard, and they unify all their Greenback, all their paper money, behind gold backing. With those key industrial powers all using gold basis for their currency, it becomes dominant. And under the gold standard, everybody is fixing their currencies to a given value of gold, which creates an enormous stability in the value of the money. If the money is linked to a fixed amount of gold then the relationship between how much a British pound is worth in US dollars stays fixed. It might be set, oh, say at $5.86. Ten years could pass and it would still be $5.86 for one pound. It would be that stable. So, with hard money, stable value, very stable exchange relationships, transactions become enormously simplified across borders. You can invest money in another country, and instead of that being kind of a rare thing, a one-off arrangement where you gotta do your homework, you can do this then in a much more commoditized way. Foreign investment can occur on a much larger scale. And it does. So, this era in the late 1800s and early 1900s becomes a golden age for international finance. Foreign investments, not just buying foreign government bonds to build railways but all kinds of foreign investments. The British, for example, investing massively in places like the United States of America, the wheat fields and livestock of Argentina, Australia, railways in India, on and on. But not only investment, also loans. Banking on a vastly larger scale. No one epitomizes this more than Pierpont Morgan, a name that still means something on Wall Street in the United States. This is his great age on both sides of the Atlantic. But also think about the amounts of money now need for all this additional infrastructure: many, many more railways, ships, bridges, sewage systems in the new cities, so municipal bonds, etc, etc. Think too about the insurance industry that goes with that. And you begin to see what a large and complex international financial enterprise is growing up to support and then become enablers of capitalist development in the second half of the 19th century and the first years of the 20th. There's some real trade-offs in having this hard money. It's actually pretty primeval, if you think about it, that however much money we have in the world has to do with how much gold we happen to dig out of the ground. But there was, in effect, a limited amount of money around the world. Therefore, buying power around the world was kind of limited by how much money was in circulation. As more and more people all over the world are putting their wheat on foreign markets, what happens actually is a prolonged recession, even deepening to a depression, in the 1870s and in the 1880s and going into the 1890s, accompanied by a huge financial crisis that rocks the whole developed world in the early 1890s: 1893, 1894. So the gold standard has real trade-offs. If you're a farmer, you borrow money to buy your tractor, but your wheat prices are going down, down and down. You're earning less money from your wheat, but the note on your loan hasn't changed at all. So as a farmer, you want to put more money in circulation. You're lobbying your government to allow silver, for example, to be a basis for money. These battles over the gold standard and whether gold was only in the interest of Wall Street, that liked stable money, sound money, but was not in the interest of the working man or the farmer who wanted more money in circulation become an intense political fight, centered above all in the United States, especially in the decisive election of 1896. In that election, the Democratic candidate, William Jennings Bryan, said that labor and farmers were being crucified on a cross of gold. Here is a cartoon lampooning Bryan for being the Bible salesman selling his Bryan cross of gold, his crown of thorns, and all the rest. Of course, epitomizing the kind of community Bryan would live in as one of ruins because these kinds of revolutionary ideas are going to undermine the value of property, which is founded on good, sound gold. Brian loses the 1896 election. His Republican opponent, who favors the gold standard, William McKinley, wins that election and the next one. The result being, according to this American cartoonist, the survival of the fittest. Gold has beaten silver; it retains its dominance. What helps the gold standard not only survive but thrive is a hugely lucky break: lots more gold is discovered and is being dug out of the ground. Where? South Africa and Alaska. For instance, here's a plaque commemorating one of the great gold finds in South Africa in an area called the Witwatersrand. At the top is the description in Afrikaans and at the bottom is the inscription in English. A discovery in the late 1880s that is producing lots and lots of gold by the mid-1890s. And here's a map of the Alaskan goldfields, which are actually in Canada as well as in the American territory of Alaska. And here's a photograph that gives you a glimpse of what some of the mining camps look like as prospectors are swarming to see if they can pan out some of these riches. What's important then for the world economy is that with a lot more gold flowing in, the gold standard staying firm, what had been a depression period in the 1870s and 1880s for agriculture, turns into another boom period. Lots more money in circulation. And the demand for agricultural products, commodities of all kind is simply enormous. So the first feature of modern capitalism is the rise of a more standardized money issued by a few nation states and supported by an increasingly complex and elaborate financial industry that enables all sorts of investments and credit to be made available. Money is the fuel of economic development. Money is a fuel for that situation, problem, solution cycle. And you see in the late 1800s how a lot more money is being available to fuel those sorts of solutions and with it the Second Industrial Revolution. That's accompanied, then, by an enormous growth of world trade. Between about 1890 and 1914, world trade quadruples. Why is that happening? First, the commodity boom. Think about those rubber tires on the bicycles. Think about those tires on the Model T, more rubber. Think about tin. We've discovered electric light bulbs. They use the tungsten filament, which our chemists have figured out will hold that electric current and make it glow. Where do I get tungsten? Oh, it's someplace else in the world. We need more tungsten, and on and on it goes. The demand for commodities is enormous. As people flow into cities, they're not eating the food that's on their farm. They're eating food that's being industrially produced. Think about how food gets produced and sold in cities then. Well, gosh, you need a can of soup. Well, where do you get the can, a tin can? I need that from some place where they mine tin. Then I need to create an industry that makes cans. What about the goods I want to ship? I want to ship them in a box. Oh, we need to make boxes, like of corrugated paper. You begin to think through, hmm, where does the stuff to make boxes come from? Trees, cut down into paper mills, that then produce a particular kind of box, and so on. As you see more and more people living in cities more and more industries going up, increases in economic growth, an enormous boom in commodities in the demand for commodities being traded from all over the world. That, for example, is one of the things that's making a place like Argentina one of the wealthiest places in the whole world in the early 20th century. Buenos Aires as glittering as many cities in Europe. Another example of the commodity boom is the growth of tropical plantations to produce things like rubber, for example. Here's a scene in the Dutch East Indies of men tapping trees in order to get latex out of them. How is all this possible? It's possible, frankly, because the seas are safe. It's the kind of thing, like oxygen, that you take for granted until you don't have it, and then you think of nothing else but your loss of it. World trade can grow because world trade is safe. Ships can mostly cruise the seas. They don't have to worry too much about pirates. They don't have to worry about raiding vessels from a warring nation. And the seas are safe, in part, as an aspect of the Pax Britannica we talked about. The British peace. The world is not at peace for the 100 years from 1815 to 1914. But the seas are pretty peaceful. And transiting those safe seas are much larger vessels. This is an unglamorous point, but it's another important stage in the Transport Revolution that I've talked about before. Not only do you have steam ships, but in the Second Industrial Revolution the steam ships carry much more stuff, much heavier stuff. This is pretty much a standard cargo vessel of say, the mid-1870s, this particular cargo vessel is Australian. You see it has got a relatively small steam engine; there are still sails there, just in case the steam engine isn't working. This has a displacement of something like 600, 700 tons. Here's a photograph of a pretty commonplace freighter. This actually originated as a German cargo ship built in about 1900. There's actually nothing especially unusual about it. It has a much more powerful steam engine. You see that these masts are no longer used for sails. The steam engine's quite reliable. Instead these masts are partly being used in order to help support things to lift cargo out of the holds. This relatively commonplace freighter has a displacement of about 10,000 tons. If you think about the difference between a freighter in 1880, that's 1000 tons displacement, and a freighter in 1900, only 20 years later, that's 10,000 tons displacement. That's a qualitative jump in the capacity to trade. And of course, no one is standing for that capacity to trade more than the free trade nation herself, Great Britain. It's interesting, by 1900, Great Britain is one of the only major powers that's still standing four square for free trade. The United States has a heavy tariff regime designed to protect its industries, though it wants to be able to trade around the world, it wants the freedom to trade everywhere. It has tariff barriers, taxing what would be brought in from other countries, and it expects that other nations might have them too. Though it's kind of glad the British don't. The Germans also have significant tariff barriers. And in fact in both Germany and the United States, tariffs are a major source of income to their national governments, to their nation states. In Britain itself, free trade becomes intensely controversial. A lot of people are arguing that: you know what, you know what we should do? We should make the empire a whole lot stronger by erecting tariff walls around our empire, so that the people who are producing goods around the empire get a protected price, and it makes our empire stronger. One of the leading advocates for such an imperial system is a politician named Joseph Chamberlain. In this cartoon, that's Chamberlain there with the monocle. Chamberlain is being supported in the desire for protectionism by the South American farmer, probably from Argentina, by the Australians, and by the agricultural producers in Africa. Who's opposing these protections? Good ol' John Bull, the symbol of Britain, David Lloyd George, the liberal politician in favor of consumer protection or what we would now call consumer protection, because also with the them is the English working man, because if you have the protection of system, the working man is going to pay higher prices for his consumer products. Looking on with some interest in this tug of war fight, you see the figure of the American Uncle Sam, the Germans, and the French. Of course, one of the other dangers here is that if everybody builds tariff walls around their empires, protecting their industries, protecting their access to raw materials, protecting their markets, it would only intensify the competition for who will have the strongest and most expansive empire. The competition also between the imperial have-nots and the imperial haves. So, in talking about modern capitalism, I've talked about modern money. I've talked about the growth of world trade. Now I want to talk about the building of an industrial society. It starts off with corporations. We're used to the world of corporations now. But this is a pretty modern development. Corporations as we know them today really take off in the 1870s and 1880s. And by the 1890s, it's becoming this really powerful thing. I mean, what's a corporation really? If I'm a person and I have a business, I borrow money, if I go bankrupt, I owe them money. My house, all my property is up. What I've done when I create a corporation is I've just created a third party entity in which people can invest. And if the corporation fails, the debts are simply held by the corporation that goes bankrupt. In other words, it has limited liability. It doesn't come back to me except if I put money at risk in the corporation, I can lose the money I put into the corporation, but that's all I have to lose. So you have this independent entity that then is supported by the people who put money into it, the shareholders. It sounds simple, but the creation of these corporations, the legal structure to support these corporations as magnets for investment, as ways of overseeing the creation of very large organizations, much larger than I could run out of say, a family business, and then a way of organizing how you create an impersonal business, not run by one family, that can go on for decade after decade with larger and larger combinations of companies, this creates a whole new institution of modern life; again, such a common place we take it for granted. This is the period in which corporate institutions become a huge part of society, and a part of society about which people are getting a lot more fearful. Instead of just being fearful of royal power, now they're worried about the power of a private entity, a corporation, that grows so large, and with such elaborate combinations, that prominent authors start using a metaphor of the octopus to describe them. Here are some contemporary illustrations. This for example is the Traction Monster. What is meant by traction? Traction is public transportation, as people thought of it in say 1900. So you've got monopolies. You've got a subway franchise. The monopoly to create the subways. Which then works in combination with the steel trust, with political pull, with gas monopolies, with the electric trust to get the electricity to run the trains. Or then there's the octopus that's taken control of the new oil industry. Here's the picture of the corporate octopus, called a trust, of Standard Oil. Its tentacles encircling state capitals, politicians, and now reaching out towards the White House itself. But what I actually want you to notice is just think about the ways in which these large organizations just change the way ordinary people live. Their daily routines regimented by a clock, in shifts, going to work in trolley cars. Think about the people these organizations need to employ: whole classes of people that didn't exist before. You need people to manage these complex enterprises. Thousands of them. You need all kinds of professionals to serve these complex enterprises. What do I mean? Professionals like those engineers we've talked about to build an oil refinery. Mining engineers, for example. There is no professional occupation more emblematic than this period between about 1890 and 1920 than the figure of the engineer. One of the most admired American figures, private or public, between 1910 and 1930, is Herbert Hoover, who made his name as a mining engineer. You also need more lawyers. [NOISE] Indeed, if you look to find out when the first law schools are created that begin professionalizing legal education, it's right in this period. You also need more doctors, both to help take care of people in the cities and use some of the new medical technology. You need professors to teach in all these universities you're building all over the place. You need bankers, many more bankers. Insurance company executives, and on, and on, and on it goes. And all of them come together in the office. The modern office, as we know it today, is to a large extent the creation of this period in history. Here's an example of an office around the turn of the century. Probably the men may be working behind those windows there to the right. Here are all the women out typing. Typing. Typewriters. The invention of the typewriter. A machine to do writing. A machine on which you can also actually begin to imprint copies by laying carbon paper between two sheets of paper. And in addition to the office, of course, the institution of the factory, already developed earlier in the century, is now becoming a huge feature of everyday life. The working class versus the capitalist class gets more and more at the center of the issues of public life. This period between about 1890 and 1910 is one of the most formative periods in political philosophy of any period in all of modern history. Here's an illustration of a factory making those Model T automobiles we talked about that are being produced by the Ford Motor Company in around 1910. You see the early version of what was called the assembly line, in which each worker had a specialized repetitive task to perform in organizing the production of automobiles, so that all these complex machines were not being put together as a matter of individual craft-work, but could be put together rapidly and cheaply. Just think, for example, what was involved in 1800, in the year 1800, if you wanted just to make a wheel. A wheel out of wood. You just think about what would be the problems involved in bending wood, to make the wheel or a barrel. You begin to realize that just to make a wheel involves a good deal of craftsmanship. Making a wheel, putting a tire on it, is not so much the work of a craftsman in wood anymore. It's the work of an industrial worker on an assembly line, employed in the tens of thousands, the hundreds of thousands, the millions, and increasingly feeling like they too need to organize. If the bosses are going to organize in large corporations, the workers need to organize in institutions that will have similar power. Let's call them unions. These used to be unions of people in crafts. Almost in common trades or guilds. Increasingly they're becoming unions of industrial workers. The United States is becoming kind of a laboratory proving ground for a lot of these innovations of the Second Industrial Revolution, including clashes between labor and management. Here is a big confrontation for the Pullman Company, which makes wonderful luxury sleeping cars for the trains that are crisscrossing the country in the early 1890s. The confrontation between labor and management is occurring literally in a factory town, a whole community that's been created by the leader of the company, George Pullman, as a benevolent gesture for his workers, giving them a place to live. That benevolence is palling for his workers by the early 1890s. They're going out on strike. The government has been called in. Soldiers and police are on guard protecting one of the building of the Pullman company from the strikers who are depicted on the foreground of the photograph. In this illustration, you see a situation which strikers are trying to interfere with the company's trains and production, and federal troops have been called out that are actually firing on the workers. So, if you step back, what we've done now in these first two presentations, on the Second Industrial Revolution, on modern capitalism, have given you a sense of the elements that are making up this Great Acceleration and some of the things that are enabling it to happen and the way that acceleration is changing the whole lives of these communities. In the next presentation, I just want to step back and reflect a little bit about how the nature of human society itself is changing. See you then.

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